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For the first year after the publication of “The Return of the Great Depression,” there were numerous critics who gleefully cited the media reports of economic recovery. The green shoots that Ben Bernanke’s eagle eye had spotted appeared to have blossomed into genuine economic growth and the National Bureau of Economic Research declared the recession to be officially over in 2009. However, the persistence of high unemployment rates despite the best efforts of the statisticians at the Bureau of Labor Statistics to hide the decline and the growing number of defaulting homeowners tended to belie all of the good news.

Throughout this time, I have pointed out that the apparent economic growth was the obvious consequence of the federal government’s borrowing and spending $4.465 trillion in the last three years. That alone is sufficient to account for 10 percent of the total cumulative GDP consumed over the period. I also explained that this vast 85 percent increase in government debt was intended to fill in the gap of declining private credit and, moreover, that it was unsustainable.

The $53 trillion question was if Ben Bernanke was going to win his high-risk gamble and if private sector credit would begin growing again before the federal government’s heroic effort gave out. As recently as the end of 2010, there were some signs of hope, as the decline of credit in the giant financial sector slowed and household credit even grew, just barely, one quarter, as the rate of increase in government debt necessarily slowed from its peak of 10 percent per quarter to only 4 percent.

However, as the following chart shows, those hopes were rapidly dashed earlier this year. As the growth of government debt has continued to slow with the end of the Obama stimulus package and the Federal Reserve’s Quantitative Easing II program, the household sector has begun declining again and the pace of the financial sector’s decline has again picked up speed. By the end of the year, it would not be surprising to see financial sector credit declining at a faster rate than it did in the previous stage of the crisis.

This is the most serious situation the U.S. economy and the global financial situation has faced since 2008. In fact, it is more serious, as instead of large international banks tottering on the edge of bankruptcy, now sovereign nations such as Ireland, Greece, Spain, Portugal and Italy are. An additional complicating factor is that neither Washington nor the Federal Reserve has any credibility left, as the “save the banks, screw the people” approach has manifestly failed to rescue the economy, provide stability to the financial system, or really do much more than trigger a stock market rally and permit bankers to pay themselves three more years of bonuses even as their institutions continue to crumble and collapse. But the additional spins on the roulette wheel have not accomplished anything of substance.

An autumn crash is clearly coming, but that does not mean the architects of the last series of bailouts will be wise enough to recognize their failure and permit it to happen. Indeed, there is some evidence that Ben Bernanke is determined to throw the dice one more time in a last “double-or-nothing” gamble in which he will stake the financial viability, and perhaps the sovereignty of the United States, on an high-risk attempt to prop up global markets by bailing out the bankrupt nations of Europe and calling for a financial stimulus package that will make the previous $787 billion one look like spare change.

Indeed, some central bank haruspices are reading the entrails of the calendar for the Federal Open Market Committee and noting that the Federal Reserve has not added a second day to a scheduled one-day meeting since December 2008, when it announced the first quantitative easing program.

But whether Bernanke decides to spin the roulette wheel again or not, the fact remains that he would only contemplate doing so if the financial system were again at the brink of failure, which, as it happens, is precisely what the debt sector figures in the Z1 report tend to suggest, as do the current yields on European government bonds. Not only are the Greek yields presently indicating default in the near term, but Portuguese yields are now six points higher than Greek bonds were one year ago.

It is strange, but I never seem to hear from those critics asking where the depression is anymore.

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